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Seven EU Countries Urge Caution on Electricity Market Reforms Amid Energy Crisis

Seven EU Countries Urge Caution on Electricity Market Reforms Amid Energy Crisis

As the EU grapples with the energy crisis, seven member states have cautioned against rushing into major changes to the bloc’s electricity market. Denmark, Germany, the Netherlands, Estonia, Finland, Luxembourg, and Latvia have warned Brussels to take measured steps instead of overhauling the system to avoid a repeat of the surge in electricity prices caused by last year’s cuts to Russian gas supply. The group, which is led by Denmark, has called for limited tweaks to the current market system instead of a complete revamp.

The European Commission is working on revising the EU’s electricity market rules to protect consumers from fossil fuel price shocks and address electricity price surges. However, the seven countries argue that the existing market design has resulted in lower electricity prices, expanded renewable energy, and ensured sufficient power supply. They want to prevent the changes from undermining the electricity market’s functionality and its potential to incentivize significant investments in renewables.

Denmark’s energy minister, Lars Aagaard, said in a statement that the bloc must resist the temptation to kill the “golden goose” that the single market for electricity has been over the last decade. While they acknowledged that there is room for improvement in the system, the countries stressed that any reforms must be based on a detailed impact assessment and not adopted hastily.

Spain and France are among the countries pushing for more extensive reforms. Spain has suggested shifting to more long-term, fixed-price contracts for power plants to limit price spikes. The seven countries have proposed voluntary schemes to play a role, like contracts for difference (CfDs), which focus on new renewable generation and still “react” to the market. However, Eurelectric, an electricity industry lobbying group, has warned against making CfDs mandatory, arguing that it could deter investors and undermine competition in the power market.

The seven EU member states support the idea of making it easier for consumers to choose between fluctuating and fixed-price power contracts. They have also opposed the Commission’s suggestion to extend a temporary EU measure that claws back windfall revenue from non-gas generators, citing concerns that it could undermine investors’ confidence in the needed investments. The bloc estimates that hundreds of billions of euros in renewable energy investments are needed annually to help countries quit Russian fossil fuels.

As the bloc faces pressure to address rising energy prices, the seven countries’ letter to Brussels highlights the challenges in reforming the EU’s electricity market. The current system has been instrumental in promoting renewable energy investments, lower electricity prices, and sufficient power supply. Any changes must be made with caution to avoid harming the market’s functionality and long-term investment prospects.

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